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Cost-efficient Miner

NMDC is India's largest iron-ore producer, but it faces concerns over statutory clearances & law-and-order issues

Why invest?
Metal prices are governed by global demand and supply. China, the largest consumer of iron ore in the world, saw demand for the metal softening on lower economic growth, which could lead to lower ore prices this year. The demand-supply picture in India is different.

Ban on mining Goa, Karnataka and Odisha for some time now has kept domestic production low. Even though mining has been allowed in Goa and Karnataka, supply deficiency is expected to remain for some time. Domestic prices therefore are not expected to fall as much as global rates. But even if prices go further south, NMDC being one of the most cost-efficient miners, will continue to generate profits albeit lower than expected.

NMDC has ₹22,500 crore cash amounting to ₹57 per share or 36 per cent of the current market price. Moreover, it is expected to generate free cash flows to the tune of ₹4300 crore between FY15-16 (Edelweiss estimates).

  • The largest iron ore producer in the country
  • Produces one-fifth of the country's iron ore production
  • NMDC's Fe content above 64% makes its ore among the highest quality in the world
  • Operates at 86% Ebitda margin; the best among peers

Caution: Volume growth is expected to remain muted. Moreover, delays in statutory clearances, soft demand and law-and-order issues especially in Naxal dominated areas may continue to remain as a overhang.